Performance Management And Employee Termination (Australia): A Practical Guide For Employers

Managing performance isn’t easy. You’re balancing team morale, legal risk and the day-to-day needs of your business - often all at once.

The good news is that a clear, fair and well-documented process will help you lift performance, resolve issues early and, where needed, carry out a lawful termination with confidence.

In this guide, we’ll walk through how performance management works in Australia, what a reasonable process looks like under the Fair Work framework, when and how termination can occur, and the key documents you should have in place to protect your business.

What Is Performance Management And Why Does It Matter?

Performance management is the structured, ongoing process of setting expectations, giving feedback, and helping employees meet the standard required for their role. It’s not just about poor performance - it also covers development, training and continuous improvement.

Done well, performance management prevents disputes, strengthens culture and documents the facts if performance doesn’t improve.

From a legal standpoint, it’s critical. If you ever need to dismiss an employee for performance reasons, the Fair Work Commission (FWC) will look at whether the dismissal was “harsh, unjust or unreasonable.” The factors the FWC considers are set out in section 387 of the Fair Work Act, including whether the employee was warned, whether they had a chance to respond, and whether a support person was allowed in meetings. You can read more about the section 387 factors and how they apply in practice.

How To Run A Fair Performance Management Process

Every workplace and award is different, but a fair process usually includes the steps below. Keep records at each stage, keep it professional, and focus on the gap between expectations and actual performance.

1) Set Clear Expectations From Day One

Start with a modern, role-appropriate Employment Contract and a clear position description. Confirm KPIs, standards and any relevant policies at induction and revisit them periodically.

2) Identify The Issue And Gather Evidence

Be specific about the concern: is it quality, timeliness, accuracy, behaviour, or failing to follow a policy or safety procedure? Collect examples, dates and any customer or colleague feedback. Keep your tone factual and avoid personal impressions.

3) Hold An Initial Meeting (And Offer A Support Person)

Invite the employee to a meeting, give reasonable notice, and let them know they may bring a support person. Explain the concern, hear their side and discuss what “good” looks like in their role. Confirm any agreed actions in writing.

4) Implement A Performance Improvement Plan (PIP)

A PIP sets out the specific improvements required, support you’ll offer (training, mentoring, tools), timeframes, and how performance will be measured. Keep timeframes realistic (often 4-8 weeks), with regular check-ins.

5) Provide Ongoing Feedback And Support

Meet regularly to review progress, document outcomes and offer feedback. If improvement is on track, acknowledge it early. If not, identify barriers and adjust the plan if appropriate.

6) Issue Formal Warnings Where Necessary

If performance remains unsatisfactory, issue a written warning describing the performance gap, previous steps taken, what must change and by when, and the potential consequences (including termination) if improvement does not occur.

7) Use A “Show Cause” Process Before Termination

Before making a termination decision, invite the employee to respond to the concerns in writing through a show cause process. This helps ensure procedural fairness and gives you a fuller picture. Our guide to show cause letters covers what to include and common pitfalls to avoid.

8) Make A Decision And Confirm It In Writing

After considering the employee’s response, decide on the outcome. If dismissal is appropriate, confirm the reasons, the effective date, any notice or payment in lieu, return of property, and post-employment obligations (like confidentiality and restraint, if applicable). Use a consistent template and keep a complete file.

9) Consider Special Situations

• Probation: Processes can be shorter during probation, but basic fairness still applies. Here’s a practical overview of termination during probation.
• Misconduct/Investigations: If allegations of misconduct arise, you may need to pause the PIP and investigate. In some cases, it’s appropriate to stand an employee down pending investigation to protect the integrity of the process and workplace safety.

If you’re unsure how to structure your process or documents, our team can design a tailored performance management and termination process for your business and train your managers on using it consistently.

When Can You Terminate Employment In Australia?

Termination is a last resort, but sometimes necessary. The key is both substantive fairness (a valid reason) and procedural fairness (a fair process).

Valid Reasons For Termination

• Underperformance: Ongoing failure to meet reasonable performance standards after a fair PIP and warnings.
• Misconduct or Serious Misconduct: Breaches of policy, safety rules or lawful and reasonable directions. Serious misconduct (e.g., theft, violence) may justify summary dismissal, but always investigate and document.
• Capacity: Inability to perform the inherent requirements of the role (for example, sustained incapacity). Separate rules can apply to medical issues - get advice early, especially before considering termination on medical grounds (if relevant to your situation).
• Redundancy: The role is no longer required due to operational changes. This is not a “performance” termination and has its own consultation, notice and redundancy pay requirements.

Procedural Fairness Essentials

• Notice the performance or conduct concerns in plain language and with examples.
• Give the employee a reasonable chance to respond and to improve (unless serious misconduct).
• Allow a support person to attend meetings if they request it.
• Consider the response in good faith before deciding.
• Confirm outcomes in writing and ensure compliance with the contract and any applicable award or enterprise agreement.

The Fair Work Commission will assess these elements against the section 387 criteria if an unfair dismissal claim is made. Following a careful process reduces the risk of adverse findings.

Notice, Payment In Lieu And Garden Leave

Most employees are entitled to notice of termination (or payment in lieu). Your options are to let them work out the notice period, place them on garden leave, or pay out the remaining notice. Learn what to include and how to calculate entitlements in our guide on payment in lieu of notice.

Check contract terms, any applicable award, and accrued entitlements (annual leave, long service leave if applicable) to ensure final pay is accurate and timely.

Separation Agreements

Sometimes you and the employee may agree to end employment on mutually agreed terms. A well-drafted separation (or deed of release) can resolve claims and set out practical matters like reference wording and confidentiality. See what to cover in Employee Separation Agreements and when they’re useful.

Legal Risks To Watch (And How To Reduce Them)

Performance terminations carry a few recurring risks. Here’s how to manage them proactively.

Unfair Dismissal

Employees who qualify (usually those employed for the minimum period and under the high-income threshold unless covered by an award or enterprise agreement) may claim unfair dismissal if the dismissal was harsh, unjust or unreasonable. Avoid risk by having a valid reason, following a fair process, and documenting each step against the section 387 factors.

General Protections (Adverse Action)

It’s unlawful to take adverse action because an employee exercises a workplace right (for example, taking sick leave or making a complaint), or due to protected attributes (like sex, race, age, disability). Keep your documentation tightly focused on performance against objective standards, not the person, timing or unrelated issues.

Discrimination & Workplace Safety

Where health, injury or disability is involved, proceed carefully. Consider reasonable adjustments and get medical input as appropriate. Ensure your safety obligations are met throughout the process, including during investigations and meetings.

Breach Of Contract Or Policy

Inconsistency is a common trap. Apply your policies consistently, follow your own procedures, and ensure any disciplinary steps line up with what your Employment Contract and policies actually say. If your contracts or policies are out of date, it’s worth updating them before issues arise.

Process Missteps During Investigations

If allegations of misconduct emerge, pause performance steps and run a fair investigation. Provide particulars, give the employee a chance to respond, and keep the process confidential. In some cases, you may lawfully stand down an employee pending investigation; get advice if you’re unsure.

What Documents And Policies Should You Have In Place?

Good documents set expectations, guide managers and prove that you followed a fair process. Most employers should have the following, tailored to their business and award coverage.

• Employment Contract: Sets out duties, hours, performance standards, notice, disciplinary process, and post-employment obligations. Use a role-appropriate, modern Employment Contract for each employee type.
• Performance Management Policy: Explains how performance concerns are raised, steps of a PIP, warning stages, and support person rights. This helps ensure consistency and procedural fairness.
• Disciplinary Policy & Investigation Procedure: Covers how complaints or allegations are handled, when suspension or stand down can occur, and confidentiality and record-keeping requirements.
• Show Cause Letter Template: A clear template aligned with your policy and contracts ensures you ask the right questions and invite a proper response. Refer to our practical guidance on show cause letters.
• Termination Letter & Final Pay Checklist: Confirms reasons, notice (or in-lieu payment), return of property, and final entitlements. Cross-check with your award and contract to avoid underpayment disputes.
• Separation Agreement (where appropriate): Useful for negotiated exits to finalise claims and obligations; see key terms in Employee Separation Agreements.

If you’d like everything packaged and ready to go (including policies, letters and checklists), our lawyers can prepare a customised performance management and termination suite so your managers are confident at every step.

Step-By-Step: From First Concern To Lawful Termination

Here’s a practical flow you can adapt to your workplace. Keep it neutral and factual at every stage.

1. Clarify expectations: Revisit the contract, KPIs and policies with the employee.
2. Document the concern: Gather dates, data and examples. Avoid subjective language.
3. First meeting: Provide details, offer support and set short-term goals. Confirm in writing.
4. PIP period: Provide training or mentoring. Schedule weekly or fortnightly check-ins.
5. Review milestone: If improvement is insufficient, issue a written warning with clear requirements and timeline.
6. Second review: If still no improvement, consider a final warning that clearly states termination may follow.
7. Show cause: Invite a written response and hold a meeting to discuss. Consider the response genuinely.
8. Decision: If dismissal is warranted, confirm the reasons, notice or payment in lieu, and final entitlements.
9. Exit & handover: Collect property, revoke system access, and maintain confidentiality and privacy standards.
10. Debrief & improve: Review what worked, update templates or training, and brief managers to keep improving your process.

During probation, you’ll often use a shorter version of this pathway - still offering clear feedback and a chance to improve - before considering termination in probation.

Common Questions We Hear From Employers

How long should a PIP last?

There’s no set rule, but 4-8 weeks is common for capability issues. The timeframe should be reasonable for the type of role, the complexity of the tasks and the training required.

Do I need to allow a support person?

You don’t have to appoint one, but if the employee requests a support person for a significant meeting (like a warning or dismissal meeting), you should allow it. This is part of procedural fairness under the Fair Work framework.

Can I terminate without a PIP?

For serious misconduct, you may move straight to investigation and disciplinary outcomes. For performance or minor conduct concerns, a PIP and warnings are usually expected before dismissal to avoid unfair dismissal risk.

What if the employee raises a medical issue?

Pause and consider reasonable adjustments. Don’t make decisions based on assumptions. Seek medical information about capacity to perform the inherent requirements of the role and consider alternatives before moving to termination.

What if the employee resigns during the process?

Confirm the resignation in writing, arrange notice or payment in lieu if applicable, and finalise handover. In some cases, a separation deed is useful to document agreed terms and settle potential claims.

Key Takeaways

• Performance management is an ongoing, structured process that sets clear expectations, supports employees and documents the facts.
• A fair process - warnings, a genuine chance to improve and a proper “show cause” step - is essential before any performance-based termination.
• The Fair Work Commission looks at the section 387 factors, so align your process with these to reduce risk.
• Get the basics right: a modern Employment Contract, clear policies, good templates and consistent record-keeping.
• Handle investigations carefully and use options like standing down pending investigation where appropriate.
• Termination letters, accurate final pay and, in some cases, a separation deed will help you exit professionally and lawfully.

If you’d like a consultation on performance management and employee termination in your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.